Chapter 3: Developing Service Concepts: Core and Supplementary Elements

1. Chapter 3: Developing Service Concepts: Core and Supplementary Elements

2. Overview of Chapter 3 • Planning and Creating Services • The Flower of Service • Planning and Branding Service Products • Development of New Services

3. Planning and Creating Services

4. Planning and Creating Services • A service product comprises all elements of service performance, both tangible and intangible, that create value for customers • The service concept is represented by: • A core product • Accompanied by supplementary services

5. Core Products and Supplementary Services • In mature industries, core products often become commodities • Supplementary services help to differentiate core products and create competitive advantage by: • Facilitating use of core product (a service or a good) • Enhancing the value and appeal of the core product

6. Vehicle Service Frequency In-flight Service Transport Pre- & Postflight Service Food & Drink Augmenting the Core Product (Fig 3.1) Figure 3.1 Shostack’s Molecular Model: Passenger Airline Service Distribution Price Key Tangible Elements Intangible Elements Marketing Positioning (weighted toward evidence) Source: Shostack

7. Augmenting the Core Product • Are supplementary services needed to facilitate use of core product or simply to add extra appeal? • Should customers be charged separately for each service element? • Or should all elements be bundled at a single price?

8. Designing a Service Concept • Core Product • Central component that supplies the principal, problem-solving benefits customers seek • Supplementary Services • Augment the core product, facilitating its use and enhancing its value and appeal • Delivery Processes • Used to deliver both the core product and each of the supplementary services

9. Core and Supplementary Product Design:An Integrated Perspective (Fig 3.2) Delivery Concept for Core Product Supplementary services offered and delivered Scheduling Nature of Process Customer Role Service Level

10. Documenting Delivery Sequence Over Time • Must address sequence in which customers will use each core and supplementary service • Determine approximate length of time required for each step • Customers may budget a specific amount of time for an activity • Information should reflect good understanding of customers, especially their: • Needs • Habits • Expectations • Question: Do customers’ expectations change during service delivery in light of perceived quality of each sequential encounter?

11. Reservation Valet Parking Cashier Business Center Reception A Bed for the Night in an Elegant Private Room with a Bathroom Room Service Baggage Service Cocktail Bar Wake-up Call Entertainment/ Sports/ Exercise Internet Restaurant Core and Supplementary Services at Luxury Hotel (Offering Much More than Cheap Motel!)

12. What Happens, When, in What Sequence? Time Dimension in Augmented Product (Fig 3.3) Reservation internet Parking Get car Check out Check in Internet Internet Use room USE GUESTROOM OVERNIGHT Porter Pay TV Meal Room service Time Frame of An Overnight Hotel Stay (Real-time service use) Before Visit

13. Flowcharting Service Delivery Helps to Clarify Product Elements • Offers way to understand totality of customer’s service experience • Useful for distinguishing between core product itself and service elements that supplement core • Restaurants: Food and beverage (core) • Reservations (supplementary services) • Shows how nature of customer involvement with service organizations varies by type of service: • People processing • Possession processing • Mental Stimulus processing • Information processing

14. Defining Core and Supplementary Elements of Our Service Product • How is our core product defined and what supplementary elements augment it? • What product benefits create most value for customers? • Is our service package differentiated from competition in meaningful ways for target customers? • What are current levels of service on core product and each supplementary element? • Can we charge more for higher service levels? For example: • Faster response and execution • Better physical amenities • Easier access • Higher staffing levels • Superior caliber personnel • Alternatively, should we cut service levels and charge less?

15. Spend Night in Room Check Out Check In Park Car Breakfast Maid Makes up Room Breakfast Prepared Simple Flowchart for Delivery of a People-Processing Service (Fig 3.4) People Processing – Stay at Motel

16. Technician Examines Player, Diagnoses Problem (Later) Play DVDs at Home Travel to Store Return, Pick up Player and Pay Leave Store Technician Repairs Player Simple Flowchart for Delivery of a Possession-Processing Service (Fig 3.4) Possession Processing – Repair a DVD Player

17. View Presentation of Weather Forecast Turn on TV, Select Channel TV Weatherperson Prepares Local Forecast Meteorologists Input Data to Models and Creates Forecast from Output Collect Weather Data Confirm Plans for Picnic Simple Flowchart for Delivery of Mental Stimulus-Processing Service (Fig 3.4) Mental Stimulus Processing – Weather Forecast

18. Weather Forecasting Is a Service Directed at Customers’ Minds (Fig 3.5)

19. Information Processing – Health Insurance Select Plan, Complete Forms Printed Policy Documents Arrive Insurance Coverage Begins Learn about Options Pay University and Insurance Company Agree on Terms of Coverage Customer Information Entered in Database Simple Flowchart for Delivery of An Information-Processing Service (Fig 3.4)

20. The Flower of Service (Fig 3.6) Information Payment Consultation Core Billing Order Taking Exceptions Hospitality Safekeeping KEY: Facilitating elements Enhancing elements

21. How to Determine What Supplementary Services Should Be Offered • Not every core product is surrounded by supplementary elements from all eight clusters • Nature of product helps to determine: • Which supplementary services must be offered • Which might usefully be added to enhance value and ease of doing business with the organization • People-processing and high-contact services tend to have more supplementary services • Market positioning strategy helps to determine which supplementary services should be included • Firms that offer different levels of service often add extra supplementary services for each upgrade in service level

22. Core The Flower of Service: Facilitating Services—Information • Customers often require information about how to obtain and use a product or service. • Examples of elements: • Directions to service site • Schedule/service hours • Prices • Conditions of sale • Usage instructions

23. Core The Flower of Service:Facilitating Services—Order Taking • Customers need to know what is available and may want to secure commitment to delivery. The process should be fast and smooth. • Examples of elements: • Applications • Order entry • Reservations and check-in

24. Core The Flower of Service:Facilitating Services—Billing • “How much do I owe you?” • Bills should be clear, • Accurate, and intelligible. • Examples of elements: • Periodic statements of • account activity • Machine display of amount • due

25. Core The Flower of Service:Facilitating Services—Payment • Customers may pay faster • and more cheerfully if you • make transactions simple • and convenient for them. • Examples of elements: • Self service payment • Direct to payee or intermediary • Automatic deduction

26. Core The Flower of Service:Enhancing Services—Consultation • Value can be added to goods and services by offering advice and consultation tailored to • each customer’s needs and situation. • Examples of elements: • Customized advice • Personal counseling • Management consulting

27. Core The Flower of Service:Enhancing Services—Hospitality • Customers who invest time and effort in visiting a business and using its services deserve to be • treated as welcome guests— • after all, marketing invited them! • Examples of elements: • Greeting • Waiting facilities and amenities • Food and beverages • Toilets and washrooms • Security

28. Core The Flower of Service:Enhancing Services—Safekeeping • Customers prefer not to worry about looking after the personal possessions that they bring with them to a service site. • Examples of elements: • Looking after possessions • customers bring with them • Caring for goods purchased • (or rented) by customers

29. Core The Flower of Service:Enhancing Services—Exceptions • Customers appreciate some • flexibility when they make special requests and expect responsiveness when things don’t go according to plan. • Examples of elements: • Special requests in advance • Complaints or compliments • Problem solving • Restitution

30. Managerial Implications • To develop product policy and pricing strategy, managers need to determine: • Which supplementary services should be offered as a standard package accompanying the core • Which supplementary elements could be offered as options for an extra charge • In general, firms that compete on a low-cost, no-frills basis needs fewer supplementary elements than those marketing expensive, high-value-added services • Each flower petal must receive consistent care and concern to remain fresh and appealing

31. Developing New Services

32. A Hierarchy of New Service Categories (1) • Major service innovations • New core products for previously undefined markets • Major process innovations • Using new processes to deliver existing products with added benefits • Product-line extensions • Additions to current product lines • Process-line extensions • Alternative delivery procedures

33. A Hierarchy of New Service Categories (2) • Supplementary service innovations • Addition of new or improved facilitating or enhancing elements • Service improvements • Modest changes in the performance of current products • Style changes • Visible changes in service design or scripts

34. Reengineering Service Processes • Service processes affect not only customers, but also cost, speed, and productivity with which desired outcome is achieved • Reengineering involves analyzing and redesigning processes to achieve faster and better performance • Running tasks in parallel instead of sequence can reduce/eliminate dead time • Examination of processes can lead to creation of alternative delivery methods that constitute new service concepts • Add/eliminate supplementary services • Resequence delivery of service elements • Offer self-service options

35. Physical Goods as a Source Of New Service Ideas • Services can be built around rentals: Alternatives to owning a physical good and/or doing work oneself • Customers can rent goods—use and return for a fee—instead of purchasing them • Customers can hire personnel to operate own or rented equipment • Any new durable good may create need for after-sales services now and in future—possession processing • Shipping • Installation • Problem-solving and consulting advice • Cleaning and maintenance • Upgrades • Removal and disposal

36. Creating Services as Substitutes for Owning and/or Using Goods (Fig 3.10) Rent Use of a Physical Good Own a Physical Good • Rent a Car and Drive it • Rent Use of Computer • Drive Own Car • Use Own Computer Perform Work Oneself • Hire a Chauffeur to Drive • Hire a Typist to Type • Hire a Taxi or Limousine • Send Work Out to a • Secretarial Service Hire Someone to Do Work

37. Caterpillar Promotes Its Service Businesses (Fig 3.11) Reprinted Courtesy of Caterpillar, Inc.

38. Achieving Success in Developing New Services • Services are not immune to high failure rates that plague new manufactured products • “dot.com” companies • In developing new services • Core product is of secondary importance • Ability to maintain quality of the total service offering is key • Accompanying marketing support activities are vital • Market knowledge is of utmost importance

39. Success Factors in New Service Development • Market synergy • Good fit between new product and firm’s image/resources • Advantage versus competition in meeting customers’ needs • Strong support from firm during/after launch • Firm understands customer purchase decision behavior • Organizational factors • Strong interfunctional cooperation and coordination • Internal marketing to educate staff on new product and its competition • Employees understand importance of new services to firm • Market research factors • Scientific studies conducted early in development process • Product concept well defined before undertaking field studies

40. Summary of Chapter 3: Developing Service Concepts (1) • Planning and creating services involve: • Augmenting core product • Designing core product, supplementary services, and delivery process • Documenting delivery sequence over time with flowcharts • Gaining insights from flowcharting • Flower of service includes core product and two types of supplementary services: facilitating and enhancing • Facilitating services include information, order taking, billing, and payment • Enhancing services include consultation, hospitality, safekeeping, and exceptions • Spectrum of branding alternatives exists for services • Branded house • Sub-brands • Endorsed brands • House of brands

41. Summary of Chapter 3: Developing Service Concepts (2) • Seven categories of new services: • Major service innovations • Major process innovations • Product-line extensions • Process-line extensions • Supplementary service innovations • Service improvements • Style changes • To develop new services, we can • Reengineer service processes • Use physical goods as a source of new service ideas • Use research to design new services • Achieve success in developing new services